Lanthanide-doped upconversion nanoparticles (UCNPs) have attractive emission properties but suffer from weak light-absorbing capacities and thereby relatively low brightnesses. This motivates using strongly absorbing dye molecules as antennas and sensitizers. However, despite much effort, understanding of this dye-UCNP interplay is still limited. Major sensitization mechanisms are still under discussion, largely because there is a lack of effective means to observe key factors such as dark state transitions within the dyes. Here, a combined spectroscopic procedure is established to systematically investigate the photophysics behind the dye-UCNP interaction, embracing fluorescence-based transient-state excitation-modulation, lifetime and correlation spectroscopy, and spectrofluorometry/spectrophotometry. With this procedure the heptamethine cyanine dye IR806, a typical UCNP sensitizer is studied, its photophysical model is established, its photophysics in UCL-sensitization-related environments is deciphered, and the energy transfer from the IR806 singlet excited state to Yb³⁺ (UCNP sensitizer ion) can be identified as the dominant sensitization mechanism. These studies suggest that IR806 can form non-emissive H-aggregates at the nanoparticle surfaces, which can be dissociated after certain light excitation duration (typically>100 µs). Moreover, buildup of a non-fluorescent, photo-redox state of IR806 after longer irradiation times (10–100 ms) can deleteriously affect its UCL sensitization effect, inferring an optimal excitation duration for dye-sensitized UCNPs, relevant for, e.g., optical imaging applications.